The government is looking at an increase in excise duty on most goods and service taxes by two percentage points to 14%, a move that could make most consumer products, including cars and white goods such as refrigerators, costlier. The higher duty would also make nearly all services dearer but will earn the exchequer Rs. 30,000-40,000 crore to fund welfare schemes to spin jobs and generate income in an election year.

“The option of raising service tax and excise duty on standard non-petroleum goods from 12% to 14% is being examined,” a source told HT.

These tax rationalisation steps are being examined as a precursor to the eventual rollout of a nationwide goods and services tax (GST) that will replace a welter of local levies such as value- added tax (VAT) and octroi by a single tax. The measure is expected to be part of the budget proposals for financial year 2013-14.

If implemented, the excise duty hike will restore the tax rate to pre-2008 levels when the government slashed it to 8% in a phased manner amid a global economic slowdown.

At 14%, service tax, however, will be the highest ever since it was introduced 19 years ago.